Russia’s VTB Leasing considers expanding into global markets

VTB Leasing Russia's market is too small for one of the country’s largest lessors

VTB Leasing, the lease-finance arm of state-controlled VTB Bank and one of Russia’s largest lessors, is looking to expand its business outside the country, the company’s general director Dmitry Ivanter revealed in an interview with Vedomosti business daily.

With no significant growth opportunities in the domestic market in the near future, the company is instead seeking to push its limits beyond Russia, mostly to the east, with the CIS and its eastern neighbours the target markets of choice.

Several deals, including the recent would-be delivery of two Embraer regional jets to Tajikistan, have already proved VTB Leasing’s new international strategy is a success. “We have commenced working with a large number of customers from outside [Russia] benefitting from the fact that VTB Leasing is part of the large international business of the VTB Group,” Ivanter says.

“For instance, we have recently delivered two full-flight [CAE 7000XR] simulators to Europe and south-east Asia. Regretfully, honouring the client’s request, we cannot disclose the details but it was an absolutely unique deal for the Russian market, a very customised product,” he adds.

The company is also processing inquiries from the Middle East, south-east Asia and China. “Fortunately, we have no problem in terms of financing. If we find a deal we’re interested in and which is compliant with our parameters for risks and profits, we can always finance it,” Ivanter states.

Nevertheless, it is Russia’s Aeroflot with its ambitious fleet expansion plans that remains VTB Leasing’s prime customer. In December last year the company closed a deal for the delivery of 50 Boeing 737NGs to the Russian flag carrier, as a result of which the aviation share in VTB’s portfolio grew to 44 per cent.

The company is also one of the three largest lessors – along with VEB Leasing and Sberbank Leasing – which may co-finance the delivery of 100 Superjet 100s to Aeroflot from next year. Each of the participants is expected to contribute up to one billion roubles.

VTB Leasing is also planning to participate in Aeroflot’s other project – the leasing of 22 Airbus A350s which are needed to renew the airline’s wide-body fleet. “According to [Aeroflot’s] strategy, their fleet should be one of the youngest in the world, and they’re now scheduling its renewal. The competition is very high, and the [deal] requires financing in US dollars which, during a time of dollar deficiency at VTB, doesn’t appear to be the most attractive deal for us,” Ivanter comments.

Industry experts are quick to remind VTB Leasing that it has already had experience of investing heavily in one airline, Transaero, which went bankrupt shortly after securing massive fleet renewal deals. Observers believe that concentrating assets in one airline may not be the wisest business decision. Ivanter expresses strong confidence in Aeroflot though, saying his company is comfortable with crediting Russia’s state-run carrier. “We have conducted due diligence and we believe that it’s a healthy exposure. The company is owned by the government and is one of the most efficient in the industry. Secondly, the deal is well secured – we have control of the technical condition of the aircraft and we’re thus confident that their actual market value corresponds with our expectations,” he assures. “With regard to Transaero, the last assets associated with this airline were sold in June. So these risks have now been removed,” he says.

The highest risks are most likely associated with aircraft that are listed on the national register, Ivanter insists. Russia’s aviation regulator Rosaviatsiya has recently been urging the country’s airlines to transfer their fleets to the national aircraft register, but the lessor is not in accord with such a recommendation. “An aircraft is an asset with a transparent value, and its documentation is part of this asset,” he explains.

“Without documents that confirm the aircraft’s diligent technical operation, its value will drop significantly. The problem is that if an aircraft had been operated under Russian registration and its continued airworthiness was maintained to Russian standards, then foreign customers may not accept this documentation. Once the leasing term with a Russian operator expires, the aircraft has then to be re-delivered to another customer, or sold. And if I purchase an aircraft and put it on the Russian register, I will have to consider its lowered value at the end of the lease term, which translates to higher lease payments for my customer.”

Using these arguments, Russian airlines have been consistently endeavouring to convince Rosaviatsiya to create conditions that guarantee the same residual values to aircraft on the national register as per those on foreign registers. But the regulator “won’t respond,” Ivanter admits.

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